The influence of large shareholders on corporate governance through voice and exit

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University of New Brunswick


This report reviews the theoretical literature on the influence, both positive and negative, that blockholders have on external and internal corporate governance. Particularly, it is concerned with the literature on the avenues through which blockholders exert control over managerial behaviour and decision making. The traditional avenue through which blockholders exert governance is via direct intervention, commonly termed “voice”, where blockholders are able to directly impact managerial performance. However, over the past decade, an alternative form of activism has emerged in the literature, namely; intervention through “exit”. This channel is concerned with blockholders trading on private information and influencing market prices. In reviewing these two channels, this report discusses the literature on the role that market liquidity plays in shareholder intervention and the impact of ownership and information structures on shareholder activism. Lastly, this report mathematically analyzes part of Maug's (1998) model.